According to his own statements and the facts, Paul M. Warburg set out to reform the monetary system of the United States, and did so. He had the success which comes to few men, of coming an alien to the United States, connecting himself with the principal Jewish financial firm here, and immediately floating certain banking ideas which have been pushed and manipulated and variously adapted until they eventuated in what is known as the Federal Reserve System.

When Professor Seligman wrote in the Proceedings of the Academy of Political Science that “the Federal Reserve Act will be associated in history with the name of Paul M. Warburg,” a Jewish banker from Germany, he wrote the truth. But whether that association will be such as to bring the measure of renown which Professor Seligman implies, the future will reveal.

What the people of the United States do not understand and never have understood is that while the Federal Reserve Act was governmental, the whole Federal Reserve System is private. It is an officially created private banking system.

Examine the first thousand persons you meet on the street, and 999 will tell you that the Federal Reserve System is a device whereby the United States Government went into the banking business for the benefit of the people. They have an idea that, like the Post Office and the Custom House, a Federal Reserve Bank is a part of the Government’s official machinery.

It is natural to feel that this mistaken view has been encouraged by most of the men who are competent to write for the public on this question. Take up the standard encyclopedias, and while you will find no misstatements of fact in them, you will find no direct statement that the Federal Reserve System is a private banking system; the impression carried away by the lay reader is that it is a part of the Government.

The Federal Reserve System is a system of private banks, the creation of a banking aristocracy within an already existing autocracy, whereby a great proportion of banking independence was lost, and whereby it was made possible for speculative financiers to centralize great sums of money for their own purposes, beneficial or not.

That this System was useful in the artificial conditions created by war—useful, that is, for a Government that cannot manage its own business and finances and, like a prodigal son, is always wanting money, and wanting it when it wants it—it has proved, either by reason of its inherent faults or by mishandling, its inadequacy to the problems of peace. It has sadly failed of its promise, and is now under serious question.

Mr. Warburg’s scheme succeeded just in time to take care of war conditions, he was placed on the Federal Reserve Board in order to manage his system in practice, and though he was full of ideas then as to how banking could be assisted, he is disappointingly silent now as to how the people can be relieved.

However, this is not a discussion of the Federal Reserve System. General condemnation of it would be stupid. But it is bound to come up for discussion one day, and the discussion will become much freer when people understand that it is a system of privately owned banks, to which have been delegated certain extraordinary privileges, and that it has created a class system within the banking world which constitutes a new order.

Mr. Warburg, it will be remembered, wanted only one central bank. But, because of political considerations, as Professor Seligman tells us, twelve were decided upon. An examination of Mr. Warburg’s printed discussions of the subject shows that he at one time considered four, then eight. Eventually, twelve were established. The reason was that one central bank, which naturally would be set up in New York, would give a suspicious country the impression that it was only a new scheme to keep the nation’s money flowing to New York. As shown by Professor Seligman, quoted in the last number, Mr. Warburg was not averse to granting anything that would allay popular suspicion without vitiating the real plan.

So, while admitting to the Senators who examined him as to his fitness for membership on the Federal Reserve Board—the Board which fixed the policies of the banks of the Federal Reserve System and told them what to do—that he did not like the 12 district banks idea, he said that his objections to it could “be overcome in an administrative way.” That is, the 12 banks could be so handled that the effect would be the same as if there were only one central bank, presumably in New York.

And that is about the way it has resulted, and that will be found to be one of the reasons for the present situation of the country.

There is no lack of money in New York today. Motion picture ventures are being financed into the millions. A big grain selling pool, nursed into existence and counseled by Bernard M. Baruch, has no hesitancy whatever in planning for a $100,000,000 corporation. Loew, the Jewish theatrical man, had no difficulty in opening 20 new theaters this year—

But go into the agricultural states, where the real wealth of the country is in the ground and in the granaries, and you cannot find money for the farmer.

It is a situation which none can deny and which few can explain, because the explanation is not to be found along natural lines. Natural conditions are always easiest to explain. Unnatural conditions wear an air of mystery. Here is the United States, the richest country in the world, containing at the present hour the greatest bulk of wealth to be found anywhere on earth—real, ready, available, usable wealth; and yet it is tied up tight, and cannot move in its legitimate channels, because of manipulation which is going on as regards money.

Money is the last mystery for the popular mind to penetrate, and when it succeeds in getting “on the inside” it will discover that the mystery is not in money at all, but in its manipulation, the things which are done “in an administrative way.”

The United States has never had a President who gave evidence of understanding this matter at all. Our Presidents have always had to take their views from financiers. Money is the most public quantity in the country; it is the most federalized and governmentalized thing in the country; and yet, in the present situation, the United States Government has hardly anything to do with it, except to use various means to get it, just as the people have to get it, from those who control it.

The Money Question, properly solved, is the end of the Jewish Question and every other question of a mundane nature.

Mr. Warburg is of the opinion that different rates of interest ought to obtain in different parts of the country. That they have always obtained in different parts of the same state we have always known, but the reason for it has not been discovered. The city grocer can get money from his bank at a lower rate than the farmer in the next county can get it from his bank. Why the agricultural rate of interest has been higher than any other (when money is obtainable; it is not obtainable now) is a question to which no literary nor oratorical financier has ever publicly addressed himself. It is like the fact of the private business nature of the Federal Reserve Sysem—very important, but no authority thinks it worth while to state. The agricultural rate of interest is of great importance, but to discuss it would involve first an admission, and that apparently is not desirable.

In comparing the present Federal Reserve Law with the proposed Aldrich Bill, Mr. Warburg said:

Mr. Warburg—“. . . . . . . . I think that this present law has the advantage of dealing with the entire country and giving them different rates of discount, whereas, as Senator Aldrich’s bill was drawn, it would have been very difficult to do that, as it provided for one uniform rate for the whole country, which I thought was rather a mistake.”

Senator Bristow—“That is, you can charge a higher rate of interest in one section of the country under the present law, than you charge in another section, while under the Aldrich plan it would have been a uniform rate.”

Mr. Warburg—“That is correct.”

That is a point worth clearing up. If Mr. Warburg, having educated the bankers, will now turn his attention to the people, and make it clear why one class in the country can get money for business that is not productive of real wealth, while another class engaged in the production of real wealth is treated as outside the interest of banking altogether; if he can make it clear also why money is sold to one class or one section of the country at one price, while to another class and in another section it is sold at a different price, he will be adding to the people’s grasp of these matters.

This suggestion is seriously intended. Mr. Warburg has the style, the pedagogical patience, the grasp of the subject which would make him an admirable public teacher of these matters.

What he has already done was planned from the point of view of the interest of the professional financier. It is readily granted that Mr. Warburg desired to organize American finances into a more pliable system. Doubtless in some respects he has wrought important improvements. But he had always the banking house in mind, and he dealt with paper. Now, if taking up a position outside those special interests, he would address himself to the wider interests of the people—not assuming that those interests always run through a banking house—he would do still more than he has yet done to justify his feeling that he really had a mission in coming to this country.

Mr. Warburg is not at all shocked by the idea that the Federal Reserve System is really a new kind of private banking control, because in his European experience he saw that all the central banks were private affairs.

In his essay on “American and European Banking Methods and Bank Legislation Compared,” Mr. Warburg says: (the italics are ours)

“It may also be interesting to note that, contrary to a widespread idea, the central banks of Europe are, as a rule, not owned by the governments. As a matter of fact, neither the English, French, nor German Government owns any stock in the central bank of its country. The Bank of England is run entirely as a private corporation, the stockholders electing the board of directors, who rotate in holding the presidency. In France the government appoints the governor and some of the directors. In Germany the government appoints the president and a supervisory board of five members, while the stockholders elect the board of directors.”

And again, in his discussion of the Owen-Glass Bill, Mr. Warburg says:

“The Monetary Commission’s plan proceeded on the theory of the Bank of England, which leaves the management entirely in the hands of business men without giving the government any part in the management or control. The strong argument in favor of this theory is that central banking, like any other banking, is based on ‘sound credit,’ that the judging of credits is a matter of business which should be left in the hands of business men, and that the government should be kept out of business. . . . . The Owen-Glass Bill proceeds, in this respect, more on the lines of the Banque de France and the German Reichsbank, the presidents and boards of which are to a certain extent appointed by the government. These central banks, while legally private corporations, are semi-governmental organs inasmuch as they are permitted to issue the notes of the nation—particularly where there are elastic note issues, as in almost all countries except England—and inasmuch as they are the custodians of practically the entire metallic reserves of the country and the keepers of the government funds. Moreover in questions of national policy the government must rely on the willing and loyal co-operation of these central organs.”

That is a very illuminating passage. It will be well worth the reader’s time, especially the reader who has always been puzzled by financial matters, to turn over in his mind the facts here given by a great Jewish financial expert about the central bank idea. Observe the phrases:

(a) “without giving the government any part in the management or control.”

(c) “they are custodians of practically the entire metallic reserves of the nation and the keepers of the government funds.”

(d) “in questions of national policy, the government must rely on the willing and loyal co-operation of these central organs.”

It is not now a question whether these things are right or wrong; it is merely a question of understanding that they constitute the fact.

It is specially notable that in paragraph (d) it is a fair deduction that in questions of national policy, the government will simply have to depend not only on the patriotism but also to an extent on the permission and counsel of the financial organizations. That is a fair interpretation: questions of national policy are, by this method, rendered dependent upon the financial corporations.

Let that point be clear, quite regardless of the question whether or not this is the way national policies should be determined.

Mr. Warburg said that he believed in a certain amount of government control—but not too much. He said: “In strengthening the government control, the Owen-Glass Bill therefore moved in the right direction; but it went too far and fell into the other and even more dangerous extreme.”

The “more dangerous extreme” was, of course, the larger measure of government supervision provided for, and the establishment of a number of Federal Reserve Banks out in the country.

Mr. Warburg had referred to this before; he had agreed to the larger number only because it seemed to be an unavoidable political concession. It has already been shown, by Professor Seligman, that Mr. Warburg was alive to the necessity of veiling a little here and a little there, and “putting on” a little yonder, for the sake of conciliating a suspicious public. There was also the story of the bartender and the cash register.

Mr. Warburg thinks he understands the psychology of America. In this respect he reminds one of the reports of Mr. von Bernstorff and Captain Boy-Ed of what the Americans were likely to do or not to do. In the Political Science Quarterly of December, 1920, Mr. Warburg tells how, on a then recent visit to Europe, he was asked by men of all countries what the United States was going to do. He assured them that America was a little tired just then, but that she would come round all right. And then harking back to his efforts of placing his monetary system on the Americans, he said:

“I asked them to be patient with us until after the election, and I cited to them our experiences with monetary reform. I reminded them how the Aldrich plan had failed because, at that time, a Republican President had lost control of a Congress ruled by a Democratic majority; how the Democrats in their platform damned this plan and any central banking system; and how, once in full power, the National Reserve Association was evolved, not to say camouflaged, by them into the Federal Reserve System.”

Remembering this play before the public, and the play behind the scenes, this “camouflaging,” as Mr. Warburg says, of one thing into another, he undertook to assure his friends in Europe that regardless of what the political platforms said, the United States would do substantially what Europe hoped it would. Mr. Warburg’s basis for that belief was, as he said, his experience with the way the central bank idea went through in spite of the advertised objection of all parties. He believes that with Americans it is possible to get what you want if you just play the game skillfully. His experience with monetary reform seems to have fathered that belief in him.

Politicians may be necessary pawns to play in the game, but as members of the government Mr. Warburg does not want them in banking. They are not bankers, he says; they don’t understand; banking is nothing for a government man to meddle with. He may be good enough for the Government of the United States; he is not good enough for banking.

“In our country,” says Mr. Warburg, referring to the United States, “with every untrained amateur a candidate for any office, where friendship or help in a presidential campaign, financial or political, has always given a claim for political preferment, where the bids for votes and public favor are ever present in the politician’s mind, . . . . a direct government management, that is to say, a political management, would prove fatal . . . . There can be no doubt but that, as drawn at present (1913), with two cabinet officers members of the Federal Reserve Board, and with the vast powers vested in the latter, the Owen-Glass Bill would bring about direct government management.”

And that, of course, in Mr. Warburg,s mind, is not only “dangerous,” but “fatal.”

Mr. Warburg had almost his whole will in the matter. And what was the result?

Turn to the testimony of Bernard M. Baruch, when he was examined with reference to the charge that certain men close to President Wilson had profited to the extent of $60,000,000 on stock market operations which they entered into on the strength of advance information of what the President was to say in his next war note—the famous “leak” investigation, as it was called; one of the several investigations in which Mr. Baruch was closely questioned.

In that investigation Mr. Baruch was laboring to show that he had not been in telephone communication with Washington, especially with certain men who were supposed to have shared the profits of the deals. The time was December, 1916. Mr. Warburg was then safely settled on the Federal Reserve Board, which he had kept quite safe from Government intrusion.

The Chairman—“Of course the records of the telephone company here, the slips, will show the persons with whom you talked.”

Mr. Baruch—“Do you wish me to say, sir? I will state who they are.”

The Chairman—“Yes, I think you might.”

Mr. Baruch—“I called up two persons; one, Mr. Warburg, whom I did not get, and one, Secretary McAdoo, whom I did get—both in reference to the same matter. Would you like to know the matter?”

The Chairman—“Yes, I think it is fair that you should state it.”

Mr. Baruch—“I called up the Secretary, because someone suggested to me—asked me to suggest an officer for the Federal Reserve Bank, and I called him in reference to that, and discussed the matter with him, I think, two or three times, but it was suggested to me that I make the suggestion, and I did so.” (pp. 570-571)

Mr. Campbell—“Mr. Baruch, who asked you for a suggestion for an appointee for the Federal Reserve Bank here?”

Mr. Baruch—“Mr. E. M. House.”

Mr. Campbell—“Did Mr. House tell you to call Mr. McAdoo up and make the recommendation?”

Mr. Baruch—“I will tell you exactly how it occurred: Mr. House called me up and said that there was a vacancy on the Federal Reserve Board. and he said, ‘I don’t know anything about those fellows down there, and I would like you to make a suggestion.’ And I suggested the name, which he thought was a very good one, and he said to me, ‘I wish you would call up the Secretary and tell him.’ I said, ‘I do not see the necessity; I will tell you.’ ‘No,’ he said, ‘I would prefer you to call him up.’” (p. 575)

There we have an example of the Federal Reserve “kept out of politics,” kept away from government management which would not only be “dangerous,” but “fatal.”

Barney Baruch, the New York stock plunger, who never owned a bank in his life, was called up by Colonel E. M. House, the arch-politician of the Wilson Administration, and thus the great Federal Reserve Board was supplied another member.

A telephone call kept within a narrow Jewish circle and settled by a word from one Jewish stock dealer—that, in a practical operation, was Mr. Warburg’s great monetary reform. Mr. Baruch calling up Mr. Warburg to give the name of the next appointee of the Federal Reserve Board, and calling up Mr. McAdoo, secretary of the United States Treasury, and set in motion to do it by Colonel E. M. House—is it any wonder the Jewish mystery in the American war government grows more and more amazing?

But, as Mr. Warburg has written—“friendship or help in a presidential campaign, financial or political, has always given a claim to political preferment.” And as Mr. Warburg urges, this is a country “with every untrained amateur a candidate for office,” and naturally, with such men comprising the government, they must be kept at a safe distance from monetary affairs.

As if to illustrate the ignorance thus charged, along comes Mr. Baruch, who quotes Colonel House as saying, “I don’t know anything about those fellows down there and I would like you to make a suggestion.” It is permissible to doubt that Mr. Baruch correctly quotes Colonel House. It is permissible to doubt that all that Colonel House confessed was his ignorance about “those fellows.” There was a good understanding between these two men, too good an understanding for the alleged telephone conversation to be taken strictly at its face value. It is possibly quite true that Mr. House is not a financier. Certainly, Mr. Wilson was not. In the long roll of Presidents only a handful have been, and those who have been have been regarded as most drastic in their proposals.

But this whole matter of ignorance, as charged by Mr. Warburg, sounds like an echo of the Protocols:

“The administrators chosen by us from the masses will not be persons trained for government, and consequently they will easily become pawns in our game, played by our learned and talented counsellors, specialists educated from early childhood to administer world affairs.”

In the Twentieth Protocol, wherein the great financial plan of world subversion and control is disclosed, there is another mention of the rulers’ ignorance of financial problems.

It is a coincidence that, while he does not use the term “ignorance,” Mr. Warburg is quite outspoken concerning the benighted state in which he found this country, and he is also outspoken about the “untrained amateurs” who are candidates for every office. These, he says, are not fitted to take part in the control of monetary affairs. But Mr. Warburg is. He says so. He admits that it was his ambition from the moment he came here an alien Jewish-German banker, to change our financial affairs more to his liking. More than that, he has succeeded; he has succeeded, he himself says, more than most men do in a lifetime; he has succeeded, Professor Seligman says, to such an extent that throughout history the name of Paul M Warburg and that of the Federal Reserve System shall be united.